No doubt many ASX investors begin their journey on the share market with the aim to make enough passive income so they can sit back and earn cash without all the fuss of a nine-to-five.
But what would it take to fund my entire lifestyle with dividend income? Let's take a look.
How much do I need to live off?
Of course, how much passive income one needs to live off is dependent on many factors, including lifestyle. Let's assume it's an average one.
According to the latest Australian Bureau of Statistics (ABS) data on the topic, collected in 2015-2016, a single person household typically spends $712 per week. That equals around $3,100 a month, or approximately $37,000 each year.
A decent-sized portfolio of ASX shares would likely be capable of offering that much dividend income. And building one from the ground up needn't be an unaffordable exercise.
Investing in ASX shares for $37k of annual passive income
Right now, the SPDR S&P/ASX 200 (ASX: STW) – an exchange-traded fund (ETF) tracking the S&P/ASX 200 Index (ASX: XJO) – offers a 4.39% dividend yield.
At that rate, an investor would need a portfolio worth around $842,000 to recognise $37,000 of annual passive income.
Of course, the higher the average (sustainable) yield, the smaller a portfolio would need to be to provide such income.
For instance, a $528,000 portfolio consistently offering a generous 7% dividend yield would be able to provide nearly $37,000 of passive income annually.
Still, that's hardly pocket change. Here's how I'd aim to grow such a portfolio by investing just $300 a week in ASX shares.
Building a $500k+ portfolio by investing $300 a week
I think I could easily commit to investing $300 every week.
By doing so, I could invest around $374,400 over the next 24 years. That's nowhere near my envisioned passive income portfolio.
However, imagine my portfolio was paying dividends at an average 7% yield while I grew it. And imagine I took those dividends and used them to buy more ASX shares.
By doing that, I could boast a portfolio worth more than $534,000 in 24 years' time. And that's before considering any potential capital gains. The magic of compounding, folks.
Thus, by investing just $300 each week, I could potentially be earning enough passive income to retire by 2047.
Of course, investing more each week could get me to my goal faster, while realising a lower yield could delay my arrival.
While that's certainly a long-term investing horizon, I think it would be worthwhile getting started this year if my goal was to fund my lifestyle on passive income alone.
